Business and Industrial (B&I) Guaranteed Loan Program

Guaranteeing loans by commercial lenders to rural businesses

The Business and Industrial (B&I) Guaranteed Loan program guarantees loans by commercial local lenders to businesses in rural areas. By guaranteeing loans made by commercial lenders against a portion (up to a maximum of 90 percent) of loss resulting from borrower default, the B&I Guaranteed Loan program is meant to expand the available credit for businesses. B&I guarantees can result in a number of benefits to such businesses.

The loan guarantee may be used for business and industrial acquisitions, construction, conversion, expansion, repair, modernization, or development costs; purchase of equipment, machinery, or supplies; startup costs and working capital; processing and marketing facilities; pollution control and abatement; and refinancing for viable projects, under certain conditions.

The 1996 Farm Bill created another eligible use for B&I Guaranteed Loan funds: the purchase of startup cooperative stock for family-sized farms where commodities are produced to be processed by the cooperative. Ineligible loan purposes include lines of credit, agricultural production that is not part of an integrated business involved in processing of agricultural products, or any project likely to transfer employment from one area to another.

Project Examples
Examples of projects that have been funded include:

In Monroe, WA, Galaxy Cinemas Northwest, LLC, was granted a $5 million B&I Guaranteed Loan to provide working capital and to refinance a short-term construction loan for a 12-screen movie theater complex.
In Perham, MN, the Barrel O'Fun Snack Food Company was granted a loan of $11,750,000 to construct a 95,000 square foot building adjacent to the existing building. The building will contain all production for snack food products. The existing building will be converted to warehouse space for finished products. Use of funds will also include the purchase of new equipment for production.
In Stanley, WI, ACE Ethanol, LLC was granted a B&I Guaranteed Loan for debt refinancing. This was an integral part of a $35 million expansion project, doubling the plant products from 15 million to 30 million gallons per year.
In Joplin, MO, Hampshire Pet Products was loaned $9.5 million to restructure outstanding debt and to buy additional equipment to expand production and employment. It manufactures dog biscuits and treats for both private label retail companies as well as national brand companies.

Application and Financial Information
As is the case with SBA loan guarantees, the business must first find a bank or lending institution willing to extend a loan subject to a guarantee. The bank then makes a joint application with the borrower to the USDA state or district office of Rural Development. The state office generally has loan approval authority.

Applications for loan guarantees over the states’ loan approval authority are submitted to the national office. They are available throughout the year and are accepted on an ongoing basis. Loan guarantees are to be approved within 60 days subject to the availability of funds. Pre-application reviews and advice are also available through state offices.

The maximum aggregate B&I guaranteed loan(s) amount is $10 million to any one borrower, although the program administrator can grant up to $25 million. For loans of $2 million or less, the maximum portion of guarantee is 90 percent; for loans over $2 million but not over $5 million, the maximum is 80 percent; and for loans in excess of $5 million, the maximum is 70 percent.

Maximum repayment terms are 7 years for working capital, 15 years (or useful life) for machinery and equipment, and 30 years for real estate. Collateral must be sufficient to protect the interests of the lender and the government and usually include personal and/or corporate guarantees.

A minimum of 10 percent tangible balance sheet equity is required for existing businesses, and 20 percent for new businesses. Feasibility studies may be required.

The interest rate is negotiated between the lender and borrower and may be fixed or variable. The lender addresses the business adequacy of equity, cash flow, collateral, history, management, and the current status of the industry in a written credit analysis. Lenders are expected to service, and if necessary, liquidate loans, with USDA's Rural Development's concurrence.

Eligibility, Uses, and Restrictions
B&I loans can be guaranteed in rural areas outside of cities with a population of 50,000 or more and the immediately adjacent urbanized area. Priority is given to applications for loans in rural communities of 25,000 or less.

Any legal entity—including individuals, public or private organizations, and federally recognized Indian tribal groups—may borrow funds. Charitable, religious or fraternal institutions or organizations cannot borrow money. Local economic development organizations and investors can also be considered. There is no size restriction on the business. Inability to obtain other credit is not a requirement.

Authorized lenders include federal or state chartered banks, credit unions, insurance companies, savings and loan associations, the Farm Credit Bank, other Farm Credit System institutions with direct lending authority, and nontraditional lenders approved on an individual lender basis.

Contact
The 47 state offices for USDA's Rural Development Program (formerly the Farmers Home Administration) deliver the B&I program (along with other business and community programs) to potential borrowers and lenders. For more information and applications, contact the state USDA Rural Development office or any Rural Development field office.

These offices can also provide contact information for local banks and lending institutions that have experience with the B&I program. Applications are not available through the national program office, but inquiries are welcome.

Carolyn Parker, Division Director
National Program Office
Business and Industry Division
USDA, Rural Business-Cooperative Service
1400 Independence Ave, SW
Washington, DC 20250-0700
Phone: (202) 690-4103; Fax: (202) 720-6003

Internet
www.rurdev.usda.gov/rbs/busp/b&i_gar.htm

Last Updated December 15, 2004